China Considers Yuan-Backed Stablecoin for Cross-Border Trade Pilot

China appears to be considering the launch of a stablecoin backed by the yuan, potentially as part of a pilot program to be rolled out in Hong Kong and Shanghai. The initiative, overseen by the People’s Bank of China (PBOC) and the State Council, aims to explore the use of digital tokens pegged to the yuan for cross-border payments while maintaining tight regulatory control over capital flows [1]. This represents a significant shift for a country that has historically maintained a strict stance against cryptocurrencies, favoring instead its own central bank digital currency (CBDC), the digital yuan [1].

Experts suggest that the yuan-backed stablecoin could find its niche in cross-border transactions, particularly in trade and regional finance, offering a non-dollar alternative. However, the U.S. dollar continues to dominate the stablecoin market, accounting for over 99% of global supply, due to its liquidity, established trust, and widespread use in global commerce [1]. Analysts like Martin Chorzempa of the Peterson Institute for International Economics highlight the challenge: if the stablecoin inherits the same restrictions and surveillance mechanisms as the yuan itself, its appeal compared to dollar-backed alternatives may be limited [1].

Patrick Tan, CEO of ChainArgos, points out that the systemic attractiveness of the yuan must improve before it can realistically compete with the dollar in the stablecoin space. This requires broader political and economic reforms, which are considered unlikely under China’s current policy environment [1]. Despite these challenges, the move reflects a broader strategic ambition to enhance the yuan’s role in international finance and to explore digital tools that align with China’s regulatory framework [1].

The pilot program is expected to proceed in phases, starting with the design and establishment of key mechanisms such as reserve requirements and pegging systems. It will then enter a controlled launch stage, limited to approved corridors and institutions, before moving into a broader evaluation phase [1]. The PBOC has emphasized the need for robust licensing, transparency in reserves, and compliance with anti-money laundering (AML) regulations to mitigate risks and ensure financial stability [1].

While the initiative signals a shift toward regulated digital finance in China, the path to widespread adoption remains uncertain. The dollar’s entrenched dominance in crypto markets—where major exchanges like Binance and OKEx rely almost exclusively on dollar-backed stablecoins—poses a formidable challenge [1]. The outcome will depend on the stablecoin’s ability to gain traction in cross-border trade, regulatory adaptability, and broader geopolitical factors.

Sources:

[1] China Could Pilot Yuan-Backed Stablecoins Under PBOC and State Council, Potentially Challenging Dollar-Dominated Crypto Markets — https://en.coinotag.com/china-could-pilot-yuan-backed-stablecoins-under-pboc-and-state-council-potentially-challenging-dollar-dominated-crypto-markets/